Alaska Cruise Laws Need Review

by Paul Motter | Tuesday, 05 Mar. 2013

The current legislative body in Alaska seems unfazed by the state's the declining cruise business.

The headline for this newsletter is mild compared to what Holland America CEO Stein Kruse had to say publicly to the Governor of Alaska at the Seatrade convention in Miami. Kruse was on fire, and he knew the chief executive of our largest state, Sean Parnell, was in the audience.

Holland America, now headquartered in Seattle made Alaska a top cruise destination back in 1975 when the original Prinsendam, passenger capacity 452, sailed the Inside Passage out of Vancouver. Eventually, the line acquired the Gray Line Tours and started offering cruise and land tour packages. Alaska was a huge part of Holland America's business model for decades, an idea soon copied by Princess, Royal Caribbean, Celebrity and NCL.

So, when Stein Kruse decided air his notions about the current legislative situation in Alaska regarding cruise lines and taxes, he didn't hold back.

"What the state of Alaska needs to realize," Stein said from the Seatrade dais during the "State of the Industry" conference attended by thousands of cruise experts, "is that our assets (the ships of Holland America) are movable. We expect, and we are not opposed to paying a rational fee, but the situation in Alaska has become quite crazy."

Stein was referring to a number of regulations and taxes that have been imposed on the cruise industry in the last few years. The state charges a $46 head tax for each passenger entering the state, plus additional port fees imposed by individual cities on Alaska itineraries. There are also "ranger fees" and a number of costly restrictions on fuel and water use by the cruise ships.

Kruse described Alaska has collected $200 million dollars in fees from the cruise lines since the [head tax] ballot initiative was passed in 2006, yet only a small percentage of it has been spent with almost $170 million still sitting in the bank. The law requires 75% of the money to be spent on projects that somehow benefit the cruise and related tourism industries within the state, however a good portion of the money that has been spent has been allocated to the smaller 25% for non-tourism related projects.

"Cruising in Alaska is already down 17% since that initiative was passed, and we have even fewer ships coming in 2010 and 2011 than we had in previous years." Alaska expects 140,000 fewer cruise visitors this year than last. Cruise ships bring almost 90% of tourists to Alaska.

"It is up to Alaska to fix these problems," Kruse continued. "Under current regulations we cannot even use the fuel that all cruise ships use." Almost all ships use bunker fuel, a low-cost, high viscosity oil product. "We cannot discharge the same water we take on in Alaska ports because what they give us has a higher copper content than your legislation allows us to release."

Governor Parnell took Stein's words seriously and is now proposing a reduction in the head tax to $34.50 per person, cutting the 25% allocated to outside projects. Parnell did not propose any changes to a state corporate income tax or a 33% tax on gambling income, nor did offer any easing of regulations. Still, the cruise lines have agreed to drop a lawsuit contending the head tax is illegal due to its specific targeting of one industry if the governor's proposal is adopted.

Surprisingly, the state legislature is not so willing to make a deal and the 2010 legislative sessions are scheduled to end for the year on April 18. So far no one aside from the governor is on fire about this deal, and if nothing changes this year it will be 2012 before any changes in the Alaska tax laws can even be put into effect.

"So, the question now for Alaska is what's to happen in 2012 and 2013," Stein concluded.